INDEX

SR. TITLE PAGE NO. SIGN.

NO.

1. INTRODUCTION OF AUDITING 6-7

2. FEATURES OF AN AUDITOR 7-8

3. ADVANTAGES & DISADVANTAGES OF AN 8-10

AUDITOR

4. POWER RIGHTS & DUTIES OF AUDITOR 10-14

5 SA 240 & SA300 15-23

6. CONCLUSION 24

7. BIBLIOGRAPHY 25

1
INTRODUCTION OF AUDITING:

Accountants and auditors both play a significant role in the general preparation
and examination of a corporation?s, business?, and/or individual?s financial
records.
These professions work to ensure the accuracy of financial records and taxes. In
addition, accountants and auditors assess financial operations and offer
consultation
and advice on the ways in which financial transactions may run at a higher level of
efficiency.

The services and responsibilities of accountants and auditors are often

intertwined, yet both fields are unique and distinct from one another. Specifically
defined, accounting is the process of identifying, measuring, and communicating
economic information for a variety of audiences. Accountants provide a company
with reliable and comprehensive information about the company?s economic
activities
and the status of its assets and liabilities.

This information is typically compiled in the forms of balance sheets, income

statements, and equity statements. The services of accountants enable clients to
understand key concepts such as financial stability and economic profitability.

Auditing refers to an independent appraisal performed by an auditing expert.

There are several types of audits; however, the most common type is the audit of
financial statements. Audit of financial statements requires the examination of the
financial statements and other relevant records of the company in order to ascertain
whether or not the statements are fairly presented.

The duties of auditors include the analysis and comparison of accounting reports
as well as the verification of a company?s compliance with standards and
regulations.

Auditors

External:-An external audit program requires an independent auditor to perform a

comprehensive financial statement audit which offers information on internal
controls over financial reporting. External auditors review accounting, payroll, and
purchasing records. Common areas of concern for external auditors involve the
classification and pay of a company?s employees. In some instances, external

2
auditors are called in to perform a thorough investigation of a company whose
shareholders doubt the accuracy or legitimacy of a company?s financial claims.

Internal:-Internal Auditors check for any mismanagement of an organization?s

funds. The primary role of Internal Auditors is to objectively review and evaluate
financial activities in order to maintain or improve the efficiency and effectiveness
of a company?s risk management, internal controls, and corporate governance.
Internal Auditors evaluate the effectiveness of accounting operations, determine
whether a company complies with laws and regulations, and investigates whether
or not a company is taking the proper steps to address control deficiencies and
audit report recommendations.

FEATURES OF AN AUDITOR:

The term "audit" refers to actions that can be either internal or external in nature.
The internal auditing function of a business is performed by an internal auditor to
determine conformity in record keeping and operations with predetermined
standards, such as inventory valuation, appropriate issuance of transportation
contracts, etc. While this is an important function for cooperative businesses, in
this article, we are concerned with the external audit function.

The audit consists of:

1. A review of the balance sheet, income statement and statement of cash flows
2. A review of the underlying documents supporting the information given in
these financial statements
3. Verification of accounts receivable and payable balances with cooperative
customers
4. A review of inventory quality, quantity, valuation, records and procedures
5. Verifying the existence of recorded securities
6. Reviewing justification for judgment decisions and estimates
7. Sampling accounting records

Reviewing minutes of the board of directors' meetings for policy changes and
instructions to management . Recommendations from other cooperatives in the
region should be helpful in the selection process.

3
Some characteristics of auditors that should be considered when making a selection
include:

Professional competence
Ability to maintain independence and a high degree of integrity
Understanding of cooperative law, philosophy and methods
Familiarity with cooperative accounting practices and the industry in which
the cooperative operates
Ability to develop and conduct an efficient audit program
Ability to communicate with the board and management
Ability to provide competent suggestions for improving financial accounting
practices
Understanding the responsibility of their reporting directly to the board
Willingness to correct any oversights occurring during the audit program

ADVANTAGES OF AN AUDITOR:
It is compulsory for all the organizations registered under the companies act must
be audited. There are advantages in auditing the accounts even when there is no
legal obligation for doing so. Some of the advantages are listed below:

1. Audited accounts are readily accepted in Government authorities like income

Tax Dept., Sales Tax dept., Land Revenue departments, banks etc.

2. By auditing the accounts Errors and frauds can be detected and rectified in time.

3. Audited accounts carry greater authority than the accounts which have not been
audited.

4. For obtaining loan from financial institutions like Banks, LIC, HUDCO, HDFC,
IFCI etc., previous years audited accounts evaluated for determining the capability
of returning the loan.

5. Regular audit of account create fear among the employees in the accounts
department and exercise a great moral influence on clients staff thereby restraining

4
them from commit frauds and errors.

6. Audited accounts facilitate settlement of claims on the retirement/death of a

partner.

7. In the event of loss of property by fire or on happening of the event insured

against, Audited accounts help in the early settlement of claims from the insurance
company.

8. In case of joint Stock Company where ownership is separated from

management, audit of accounts ensure the shareholders that accounts have been
properly maintained, funds are utilized for the right purpose and the management
have not taken any undue advantage of their position.

9. To determine the value of the business in the event of purchase or sales of the
business, audited account will be the treated as the base for the evaluation.

10. The audit of accounts by a qualified auditor also help the management to
understand the financial position of the business and also it will help the
management to take decision on various matters like report in internal control
system of the organization or setting up of an internal audit department etc.

11. If the accounts have been audited by an independent person, disputes between
the management and labor unions on payment of bonus and higher wages can be
settled amicably.

12. In the event of admission of a new partner, audited accounts will facilitate the
formation of terms and conditions for joining the new partner. Last 3 years audited
accounts and balance sheet will give a general idea about the growth and financial
position of the business to the new partner.

5
DISADVANTAGES OF AN AUDITOR:
1. Frauds by management
Auditing fails to check planned frauds. The management can play tricks to
manipulate the accounts in order to conceal their inefficiencies. The audited
accounts could not show the true view.
2. Wrong certificate
Auditing is based on many certificates taken from management and other persons.
Auditing may fail to provide the desired results. When certificates provides wrong
information.
3. Misleading clarification: Auditing fails to disclose correct information. The
management may not provide correct clarification. The auditor is bound to present
his report even of the clarification is not true.
4. No true picture: The auditing does not present true picture. Auditing fails to
disclose true picture when figures have been manipulated.
5. No correct view: Auditing fails to present correct view. There are limitations of
accounting so figures are not facts. These figures are based on opinion. Thus
auditing is unable to disclose correct view.
6. No suggestion: Auditing is not concerned with the management policies. The
auditor cannot guide management for better use of capital. He is unable to suggest
what should have been done.
7. Absence of honesty: Honesty and independence are highly essential traits. The
auditor must certify what is true. The absence of honesty and independence means
failure of audit purpose.
8. Bias of auditor: The auditing fails to present fair view due to bias of an auditor.
It is the quality of an auditor that he should be independent. The bias auditing fails
to help many people.
9. High cost: The audit work is completed without cost. The cost of audit should
not exceed of errors and frauds. Auditing fails to serve million of business entities.
10. Past action: Auditing is nothing more than checking of past activities. It is not
concerned with present or future. The audit fees increase the cost of business. Such
cost does not help to improve market standing of enterprises.

6
POWER RIGHTS, DUTIES OF AUDITORS:

POWER AND DUTIES OF AUDITORS AND ACCOUNTING STANDARD

(Section 143):

Every auditor has certain duties to perform and has power to perform these duties.

Right to access (Sub Section 1):

Every auditor of a company shall have right to access at all time to book of
accounts and vouchers of the company. The Auditor shall be entitled to require
from officers of the company such information and explanation as he may consider
necessary for performance of his duties.

There is an inclusive list of matter for which auditor shall seek information and
explanation. This list helps auditor to take special care on serious issues. The list
includes issues related to:

(a) Proper security for Loan and advances,

(b) Transaction by book entries

(c) Sale of assets in securities in loss

(d) Loan and advances made shown as deposits,

(e) Personal expenses charged to revenue account

(f) Case received for share allotted for cash

The auditor of holding company also has same rights.

Auditors Report (Sub Sections 2, 3 and 4) :

The auditor shall make a report to the members of the company on accounts
examined by him on every financial statements and report financial statement give
a true and fair view of the state of the companys affairs at the end of its financial
year and profit or loss and cash flow for the year and such other matters.

The auditor report shall also state:

7
(a) Whether he has sought and obtained all the necessary information and
explanations,

(b) Whether proper books of account have been kept,

(c) Whether the report from branch auditor was sent to him and the manner he
dealt with it,

(d) Whether companys balance sheet and profit and loss account are in agreement
with books of accounts and returns,

(e) Whether financial statements comply with accounting standards,

(f) The observations or comments on financial transactions or matters which

have any adverse effect

(g) Whether any directors is disqualified from being appointed as director under
section 164(2),

(h) Any qualification, reservation or adverse remark

(i) Whether company has effective internal control system and operative
effectiveness, and

(j) Such other matters.

The report shall state the reason for answers in negative and with qualification.

Audit report of Government Company (Sub Section 5, 6 and 7):

The audit report of auditors of government shall submit a copy of the audit report
to the Comptroller and Auditor General of India which among other things
include the directions issued by the Comptroller and Auditor General of India,
the action taken thereon and its impact on the accounts and financial statement of
the company.

The Comptroller and Audit General of India shall within sixty days of receipt of
the report have right to (a) conduct a supplementary audit and (b) comment upon
or supplement such audit report.

8
The Comptroller and Audit General of India may cause test audit to be conducted
of the accounts of such company.

Branch Audit (Sub section 8):

Where a company has a branch office, the accounts of that office shall be audited
either by the auditor appointed for the company (herein referred to as the
companys auditor), or by any other person qualified for appointment as an auditor
of the company, or where the branch office is situated in a country outside India,
the accounts of the branch office shall be audited either by the companys auditor
or by an accountant or by any other person duly qualified to act as an auditor of the
accounts of the branch office in accordance with the laws of that country.

The branch auditor shall prepare a report on the accounts of the branch examined
by him and send it to the auditor of the company who shall deal with it in his report
in such manner as he considers necessary.

Account Standards (Sub Section 9, 10 and 11):

Every auditor shall comply with the auditing standards. The Central Government
shall notify these standards in consultation with National Financial reporting
Authority. The government may also notify that auditors report shall include a
statement on such matters as notified.

Fraud Reporting (Sub Section 12, 13, 14 and 15):

if an auditor of a company, in the course of the performance of his duties as

auditor, has reason to believe that an offence involving fraud is being or has been
committed against the company by officers or employees of the company, he shall
immediately report the matter to the Central Government within such time and in
such manner as may be prescribed.

No duty to which an auditor of a company may be subject to shall be regarded as

having been contravened by reason of his reporting the matter if it is done in good
faith.

The provisions of this section shall mutatis mutandis apply to

(a) the cost accountant in practice conducting cost audit under section 148; or

9
(b) the company secretary in practice conducting secretarial audit under section
204.

AUDITOR TO SIGN AUDIT REPORTS (SECTION 145):

The auditor of the company shall sign the auditors report or sign or certify any
other document of the company and the qualifications, observations or comments
on financial transactions or matters, which have any adverse effect on the
functioning of the company mentioned in the auditors report shall be read before
the company in general meeting and shall be open to inspection by any member of
the company.

AUDITOR IN GENERAL MEETING (Section 146):

All notices of, and other communications relating to, any general meeting shall be
forwarded to the auditor of the company, and the auditor shall, unless otherwise
exempted by the company, attend either by himself or through his authorised
representative, who shall also be qualified to be an auditor, any general meeting
and shall have right to be heard at such meeting on any part of the business which
concerns him as the auditor.

PUNISHMENT FOR CONTRAVENTIONS (Section 147):

If an auditor of a company contravenes any of the provisions of section 139,

section 143, section 144 or section 145, the auditor shall be punishable with fine
which shall not be less than twenty-five thousand rupees but which may extend to
five lakh rupees.

Where an auditor has been convicted under sub-section (2), he shall be liable to

(i) refund the remuneration received by him to the company; and

(ii) pay for damages to the company, statutory bodies or authorities or to any other
persons for loss arising out of incorrect or misleading statements of particulars
made in his audit report.

Where, in case of audit of a company being conducted by an audit firm, it is

proved that the partner or partners of the audit firm has or have acted in a
fraudulent manner or abetted or colluded in any fraud by, or in relation to or by,
the company or its directors or officers, the liability, whether civil or criminal as
provided in this Act or in any other law for the time being in force, for such act

10
shall be of the partner or partners concerned of the audit firm and of the firm
jointly and severally.

SA 240 AUDITOR'S RESPONSIBILITIES RELATING TO

FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS
This SA provides extended guidance on the auditor responsibility for identifying and
reporting on frauds and errors.
The primary responsibility for the detection of fraud and error is of those charged with
governance and management of the entity.

Responsibility of auditor

The financial audit is conducted by auditor to obtain reasonable assurance that financial
statements are free from material misstatement caused by fraud and errors. Due to certain
inherent limitation, even an audit that is properly planned and performed in accordance
with generally accepted auditing standards may fail to detect a cleverly concealed fraud.
The term reasonable assurance implies that some risk of material misstatement could be
present in financial statement and the auditor will fail to find it. The auditor therefore
cannot be held liable for prevention of fraud and errors.
If auditor knew about existence of fraud and error in financial statement and still didnt
communicate with appropriate authority then its a serious dereliction of duty on his part
and he will be liable to compensate the third party who has suffered loss as a result of
relying on the accounts.
Generally, it involves theft of assets. Mostly Cash or goods of the firm, Computer
hardware etc.

Frauds and Errors

Misstatements in financial statement can be arise from fraud and errors.
Errors in context of audit has been defined by SA 240 as Unintentional misstatement in
the financial statement.
Now Fraud can be of two type:

11
Fraud raise doubt about the integrity of management & those charged with governance.

Based on the fraud risk assessment the auditor assesses the inherent and control risk and then
determines the level of detection risk. The auditor then designs the procedures to auditor to
address them.

The auditor should plan and perform an audit with an attitude of professional scepticism, it
involves

Questioning mind and a critical assessment of audit evidence.

Auditor should conduct the engagement with a mindset that a material misstatement
could exist as a result of fraud, notwithstanding the auditors past experience of the
honesty and integrity of the entitys management.
While collecting and evaluating the audit evidences, the auditor should not be satisfied
with less persuasive evidence because of past experience that management is honest.

Procedures when there is possible misstatement

If the auditor has identified a fraud or has indication of fraud, the auditor shall
communicate these matters on a timely basis to the appropriate level of management.
Auditor should perform modified or additional procedures, if the misstatement has a
material effect on financial statements.
If many material frauds found, then auditor shall consider whether to continue (Yes/No),
if No then discuss the material misstatements with those charged with governance & then
withdraw.

12
Objective of project

The objective of this project was to revise ISA 240, The Auditor's Responsibility to Consider
Fraud and Error in an Audit of Financial Statements.

Scope

The project revised ISA 240 to align extant ISA 240 with the audit risk model and to adopt the
basic principles and essential procedures contained in the US SAS 99, Consideration of Fraud in
a Financial Statement Audit.

Background

In March 2001, the IAPC issued ISA 240. In March 2001, the US ASB invited representatives of
the IAPC to attend meetings of the US ASB's Fraud Task Force. The IAPC accepted the
invitation with the view to obtaining an understanding of the development of a revised US SAS
82 so that ISA 240 could be revised to converge with the final revised US SAS 82, subject to any
differences necessary to take account of the international environment.

In February 2002, the US ASB issued an exposure draft Consideration of Fraud in a Financial
Statement Audit. The IAASB issued a response letter to this exposure draft.

In October 2002, the US ASB issued SAS 99.

Issues

ISA 240 (Revised) deals with an auditor's responsibility to consider fraud in the audit of financial
statements.

The revised ISA builds on the Audit Risk Standards (i.e. ISA 315, ISA 330 and ISA 500
(Revised)) issued in 2003.

The revised ISA:

Distinguishes fraud from error and describes the two types of fraud that are relevant to
the auditor, that is, misstatements resulting from misappropriation of assets and
misstatements resulting from fraudulent financial reporting; describes the respective
responsibilities of those charged with governance and the management of the entity for
the prevention and detection of fraud, describes the inherent limitations of an audit in the
context of fraud, and sets out the responsibilities of the auditor for detecting material
misstatements due to fraud;
Requires the auditor to maintain an attitude of professional skepticism recognizing the
possibility that a material misstatement due to fraud could exist, notwithstanding the
auditor's past experience with the entity about the honesty and integrity of management
and those charged with governance;

13
 Requires members of the engagement team to discuss the susceptibility of the entity's
financial statements to material misstatement due to fraud and requires the engagement
partner to consider which matters are to be communicated to members of the engagement
team not involved in the discussion;
Requires the auditor to:
o Perform procedures to obtain information that is used to identify the risks of
material misstatement due to fraud;
o Identify and assess the risks of material misstatement due to fraud at the financial
statement level and the assertion level; and for those assessed risks that could
result in a material misstatement due to fraud, to evaluate the design of the entity's
related controls, including relevant control activities, and to determine whether
they have been implemented;
o Determine overall responses to address the risks of material misstatement due to
fraud at the financial statement level and consider the assignment and supervision
of personnel; consider the accounting policies used by the entity, and incorporate
an element of unpredictability in the selection of the nature, timing and extent of
the audit procedures to be performed;
o Design and perform audit procedures to respond to the risk of management
override of controls;
o Determine responses to address the assessed risks of material misstatement due to
fraud;
o Consider whether an identified misstatement may be indicative of fraud;
o Obtain written representations from management relating to fraud; and
o Communicate with management and those charged with governance;
Provides guidance on communications with regulatory and enforcement authorities;
Provides guidance if, as a result of a misstatement resulting from fraud or suspected
fraud, the auditor encounters exceptional circumstances that bring into question the
auditor's ability to continue performing the audit; and
Establishes documentation requirements.

SA 300 Planning an Audit of Financial Statements:

Scope

The project dealt with the audit procedures and activities performed to properly plan the audit
and supervise engagement team members to ensure that the audit is performed in an effective
manner.

Background

Audit planning is a continual process throughout the audit engagement. In order to recognize
audit planning as a continual process, and to align the guidance on audit planning with the new
Audit Risk Standards, the IAASB approved a project to revise ISA 300.

14
Issues

ISA 300 (Revised) deals with planning an audit of financial statements. The revised ISA:

Requires the auditor to plan the audit so that the engagement will be performed in an
effective manner.
Recognizes that planning involves the engagement partner and other key members of the
engagement team to benefit from their experience and insight.
Recognizes that planning is not a discrete phase of the audit but, instead, a continual and
iterative process that continues until the completion of the audit.
Requires the auditor to perform preliminary engagement activities regarding engagement
acceptance and continuance, evaluation of compliance with ethical requirements
including independence, and establishing an understanding of the terms of the
engagement.
Requires the auditor to establish an overall audit strategy for the audit that sets the scope,
timing and direction of the audit, and that guides the development of the more detailed
audit plan.
Provides guidance on the overall audit strategy in terms of consideration of the resources
to deploy for specific audit areas, the timing of when these resources are used, and how
such resources are managed, directed and supervised.
Requires the auditor to develop a detailed audit plan based on the high-level direction
provided by the overall audit strategy.
Requires the auditor to update and change the overall audit strategy and audit plan as
necessary during the audit.
Requires the auditor to plan the nature, timing and extent of direction and supervision of
engagement team members and review of their work.
Establishes documentation requirements.

When does audit planning take place?

Naturally, it is reasonable to assume that planning occurs towards the start of an audit
engagement. However, according to ISA 300, planning should not be seen as a discrete and
separate part of the overall audit. Planning often begins shortly after, or in connection with, the
completion of the previous audit, for example, with a review of issues that were discussed with
management, such as control deficiencies or unadjusted errors. Such matters are relevant to the
next years audit and need to be considered when planning.

Similarly, the audit plan may be revised as the audit progresses, and should not be viewed as
being fixed in place once the main planning phase has ended. For example, a significant event
may take place as the audit is in progress, meaning that the audit plan needs to be changed.

The nature and extent of planning activities depends on the size and complexity of the audit
client, previous experience of the audit firm with the client, and any changes in circumstance that
may occur during the audit.

15
Preliminary activities:
ISA 300 contains a requirement that the auditor shall undertake the following activities at the
beginning of the current audit engagement:

Performing procedures regarding the continuance of the client relationship and the
specific audit engagement.
Evaluating compliance with relevant ethical requirements, including independence.
Establishing an understanding of the terms of the engagement.

These requirements are also contained in and ISA 220, Quality Control for an Audit of Financial
Statements and ISA 210, Agreeing the Terms of Audit Engagements and remind us that planning
is a wider activity than just obtaining understanding of the business and performing risk
assessment.

Audit strategy and audit plan:

ISA 300 states that audit planning activities should:

establish the overall audit strategy for the engagement

develop an audit plan.

Audit strategy:
The audit strategy sets out in general terms how the audit is to be conducted and sets the scope,
timing and direction of the audit. The audit strategy then guides the development of the audit
plan, which contains the detailed responses to the auditors risk assessment. An underpinning
principle of audit planning under the Clarified ISAs is that the audit plan should contain detailed
responses to the specific risks identified from obtaining an understanding of the audited entity.
ISA 300 requires the auditor to consider specific matters when establishing the audit strategy,
and provides a list of typical matters to be considered in its appendix. These matters are
discussed below.

Identify the characteristics o f the engagement that define its scope:

Some audit engagements have specific characteristics that mean the audit has a wider scope than
the audit of other entities. For example, a group audit engagement or the audit of a multinational
company will both have wider scopes than an audit of a small, owner-managed entity. Matters
such as the ability to use the work of internal auditors, the need to liaise with external service
organisations, and the effect of IT on audit procedures are also relevant. The scope is also
affected by the applicable financial reporting framework, the nature of the audited entitys
business and whether it operates business segments, the business activities conducted, and the
availability of client personnel and data.

Ascertain the reporting objectives of the engagement to plan the timing of the
audit and the nature of the communications required:
Reporting requirements will vary from audit to audit. For example, some entities have additional
reporting requirements to comply with corporate governance regulations or industry
requirements, and the auditor must understand these requirements from the start of the audit. The

16
nature of other communications that may be necessary during the audit should be considered,
such as liaison with component auditors, and communications to management and to those
charged with governance.

Consider the factors that are significant in directing the audit teams efforts in
the auditors professional judgment:
The strategy must consider issues to do with quality control, such as how resources are managed,
directed and supervised, when team briefing and debriefing meetings are expected to be held,
how engagement partner and manager reviews are expected to take place (for example, on-site or
off-site), and whether to complete engagement quality control reviews.

Consider the results of preliminary engagement activities and knowledge

gained on other engagements:
This includes the initial assessments of materiality, risks identified from preliminary activities
such as fraud risks, significant events that have occurred at the entity or in the industry in which
it operates since the last audit, and the results of previous audits that involved evaluating the
operating effectiveness of internal control, including the nature of identified deficiencies and
action taken to address them. The audit firm may also have performed other services for the
client that may be relevant in determining the audit strategy, for example, reviews of business
plans or cash flow forecasts.

Ascertain the nature, timing and extent of resources necessary to perform the
engagement:
One of the main objectives of developing the audit strategy is to effectively allocate resources to
the audit team, for example, the use of specialists on particular areas of the audit, or building a
team of highly experienced auditors for a potentially high-risk audit engagement. If the audit is
time pressured due a tight deadline, then more resources will need to be allocated to ensure that
all necessary audit work is completed, and can be reviewed in time to meet the deadline.

Audit plan:
ISA 300 states that once the overall audit strategy has been established, an audit plan can be
developed to address the various matters identified in the overall audit strategy, taking in to
account the need to achieve the audit objectives through the efficient use of the auditors
resources. The establishment of the overall audit strategy and the detailed audit plan are not
necessarily discrete or sequential processes, but are closely interrelated since changes in one may
result in consequential changes to the other.

Therefore it is not necessarily the case that the audit strategy is prepared and completed before
the audit plan is devised, and in practice it is typical for the two to be developed together.

The audit plan is a detailed programme giving instructions as to how each area of the audit will
be conducted. In other words, the audit plan details the specific procedures to be carried out to
implement the strategy and complete the audit.

17
ISA 300 provides guidance on what should be included in the audit plan, stating that the audit
plan should describe:

the nature, timing and extent of planned risk assessment procedures

the nature, timing and extent of planned further audit procedures at the assertion level
other planned audit procedures that are required to be carried out so that the engagement
complies with ISAs.

Typically an audit plan will include sections dealing with business understanding, risk
assessment procedures, planned audit procedures ie the responses to the risks identified and other
mandatory audit procedures.

Changes to the audit strategy and audit plan:

The audit strategy and audit plan are not fixed once the planning stage of the audit is complete. It
is important that both are updated and changed as necessary as the audit progresses. For
example, as a result of unexpected events, or changes in conditions, the auditor may need to
modify the overall audit strategy and audit plan and thereby the resulting planned nature, timing
and extent of further audit procedures, based on the revised consideration of assessed risks.

This may be the case when information comes to the auditors attention that differs significantly
from the information available when the auditor planned the audit procedures, for example, an
event may take place after audit planning has been initially completed which creates doubt over
going concern. Or, as a result of performing planned audit procedures additional information
may come to light which may lead the auditor to amend initial risk assessment, or level of
performance materiality, for all, or part, of the audit.

Documentation:
ISA 300 requires that as well as the audit strategy and audit plan being thoroughly documented, a
record of significant changes made to the audit strategy and audit plan is needed.

Documentation is crucial, because key decisions about how the audit will be performed are
contained in the audit strategy and audit plan. The documentation should therefore include the
response made by the auditor to any significant changes that occur during the audit, as discussed
above.

The audit strategy and audit plan do not need to be documented in a particular way. Some audit
firms use memoranda, others checklists. Some use standardised documentation such as
standardised audit programmes while others tailor the specific form of the documentation to each
audit engagement. The form of the documentation does not matter as long as it provides a clear
record of how the audit was planned.

Direction, supervision and review:

ISA 300 requires that the auditor shall plan the nature, timing and extent of direction and
supervision of engagement team members and the review of their work.

It is crucial that the audit plan includes the detail as to how supervision and review should be

18
conducted during the audit, in order to perform a high quality audit. Inadequate supervision and
review can lead to the audit team making errors, for example, selecting inappropriate items for
sampling, or failing to properly conclude on audit procedures performed.

The amount of detail included in the audit plan in relation to supervision and review will depend
on factors such as the size and complexity of the entity being audited, the assessed risk of
material misstatement, and the capabilities and competence of the audit team members.

Additional considerations in initial audit engagements:

The final section of ISA 300 relates to initial audit engagements, and requires the auditor to
perform client and engagement acceptance procedures (as also required by ISA 220), and also to
communicate with the predecessor auditor, where there has been a change of auditors, in
compliance with relevant ethical requirements. The ISA recognises that for an initial audit
engagement, the auditor may need to expand the planning activities because the auditor does not
ordinarily have the previous experience with the entity that is considered when planning
recurring engagements.

19
 CONCLUSION
Planning an audit involves more than just obtaining business understanding and performing risk
assessment. Planning is a dynamic process that may evolve during the audit, and should always
respond to changes in the circumstances of the audited entity. Adherence to the requirements of
ISA 300 should result in a well-focused audit, staffed by appropriate personnel, performing
relevant and appropriate audit procedures.

The financial reporting standards that must be considered when preparing a companys accounts.
More standards are expected as the complexities of business transactions grow and accounting
practice adapts to keep up with these changes. Such changes already observed in business are the
use of derivatives and financial instruments.

There are significant difference between Indian Accounting Standardand International

Accounting Standard. However, both the countries are planning to implement IFRS to
cope up with these differences.

20
 BIBLIOGRAPHY
"Indian Accounting Standards Converged with IFRS Notified". Press Information Bureau.
Retrieved 25 February 2011 http://en.wikipedia.org/wiki/Indian_Accounting_Standards

Aggarwal, J. C. 1996. Human Development in India since Independence: Socio-Economic

Profile. New Delhi: Shipra.

Aggarwal, Y. P. 1994. "Baseline Assessment Study." (Various districts in Karnataka.) National

Institute of Educational Planning and Administration, New Delhi. Processed.

21